presentation for apgtf workshop dti 10 september 2002 gordon mackerron nera n.
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Presentation for APGTF Workshop, DTI 10 September 2002 Gordon MacKerron NERA. Overview of The PIU Energy Review. Context. Over the last decade or more, a fortunate combination..… Liberalisation and re-regulation pressing gas/electricity prices down World fossil fuel markets slack

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  • Over the last decade or more, a fortunate combination..…
    • Liberalisation and re-regulation pressing gas/electricity prices down
    • World fossil fuel markets slack
    • Good luck – especially that commercially dominant CCGT had virtuous environmental characteristics
  • …..meant that final energy prices fell, while environmental quality improved (SOx, NOx and CO2)
future likely to differ
Future Likely to Differ
  • Challenge of RCEP – 60% carbon emission reductions by 2050
  • Energy security apparently threatened
    • California
    • Gas imports
    • Fuel protesters
    • Investment incentives
  • Fossil fuel prices may not stay low forever
sustainable development
Sustainable Development
  • A very big idea, encompassing following objectives
    • Economic
    • Environmental
    • Social
  • All policy domains meant to contribute to all objectives
energy policy
Energy Policy
  • Capacity to deliver these three ‘sustainability’ objectives is highly variable
    • Social objectives – rather little, though some in equity/fuel poverty
    • Economic objectives – rather more, though energy fairly minor component of most business costs
    • Environmental objectives – if climate change matters then only energy policy can deliver: 80% of GHG emissions derive from energy system
  • This means that where there are trade-offs, future presumption will be in favour of environmental objectives
  • Suggested future objective of policy: ‘the pursuit of secure and competitively priced means of meeting our energy needs, subject to the achievement of an environmentally sustainable energy system’
energy security 1
Energy Security (1)
  • Security seen as an underpinning objective – too little of it undermines all other objectives. Governments tend to be blamed if lights go out a lot
  • Problem is: how much security is enough?
  • A variety of potentially real risks, classified as
    • Originating outside the UK
    • Originating within UK borders
energy security 2
Energy Security (2)
  • The following not taken seriously
    • That imports are axiomatically bad – in fact, they add to diversity and offer access to low cost resources
    • That there are problems of resource scarcity – in fact, fossil fuels not seriously scarce for some decades and then oil the one potentially serious scarcity problem
    • That problems so acute that major market interference needed: - in fact, no case for carving up electricity market, or giving subsidies to favoured technologies/fuels
energy security 3
Energy Security (3)
  • What is needed for security
    • European gas/electricity liberalisation
    • International/co-operative action e.g. on transit security
    • Encourage more resilience in energy system e.g. via considering storage, LNG, keeping coal capacity open etc.
    • Monitoring investment incentives in UK energy system
scenarios to 2020 2050
Scenarios to 2020 & 2050
  • Adopted Foresight scenarios: none for 2050 are business as usual, and having four means that there is no ‘central’ future
  • 2020: Striking finding that on all scenarios, gas as proportion of energy use rises (though absolute use might fall a bit in ‘environmental’ scenarios)
  • 2050: 60% cuts in emissions are possible at cost of well under one year’s growth in GDP
  • Equally striking finding to 2050 that even if electricity is zero-carbon by mid-century, very large cuts in transport emissions needed (or radical new vehicle technology) to approach the 60% cut
approaches to low carbon economy
Approaches to Low Carbon Economy
  • Prime need is for precautionary and preparatory action to get on to right path
  • Timing important: don’t go it alone, don’t be reactive, but be ‘just ahead of the pack’: create options to reduce costs in future
  • Support innovation more widely
  • Start with lowest regret, most cost-effective measures
  • Ensure flexibility and reversibility
  • Clarify commitment to long-term carbon valuation, probably to include carbon taxes as well as trading
energy efficiency 1
Energy Efficiency (1)
  • Has large low-cost potential: much energy efficiency investment results in net savings, not costs. Even if ‘hidden costs’ are large, still the lowest cost low carbon option
  • Has great advantage that it is consistent with all sustainable development objectives and with energy security objectives
  • PIU report puts energy efficiency at the centre of future energy policy
  • Household energy efficiency critical – target is 20% improvement by 2010, and 20% more by 2020
  • Multiple policy interventions needed but no single dramatic ‘solution’
energy efficiency 2
Energy Efficiency (2)

…..though issues remain……

  • efficiency policy is not costless for everyone: some households may ‘lose’ (eg in EEC) and carbon valuation will raise energy prices at some point
  • solutions to fuel poverty mean that ‘rebound effect’ may be substantial in early years – efficiency gains (rightly) taken in higher comfort not less energy use
  • some policies will only deliver gradually, as they depend on capital stock replacement
  • role of local agencies – including Local Government – is critical, but may take time to become fully effective

……..potential remains enormous, and policy profile badly needs to be raised

renewable energy
Renewable Energy
  • The main supply side way to create new options
  • While much development will be international, specific UK efforts needed in some areas, especially marine
  • New target for 2020 of 20% of electricity supply: could raise household prices by 5% to 6% (but not necessarily household bills)
  • Major problems stand in way of 10% target for 2010: need to improve planning, NETA and charging system
nuclear power
Nuclear Power
  • Zero carbon electricity on potentially large scale
  • Current proposals inflexible: 10 GW programme
  • Technology will stay available internationally for some time
  • Need to encourage longer-term low-waste modular designs
  • Nuclear should benefit from future carbon valuation measures
  • But waste remains a large political (though not economic) problem
  • Environmental impacts very serious: ‘clean coal’ still quite dirty
  • Will not disappear in medium term, and should be available as security back-up
  • No serious long-term role unless carbon removal becomes established
  • UK has advantages in capture and sequestration, and prospects should be researched more intensively: may be case for more public support
  • Long term case for combining energy policy, climate change and transport in one department
  • Immediate priority is to set up a Sustainable Energy Policy Unit
  • Also important that DTI energy supply role be combined with DEFRA demand side role: current division risks incoherence
  • Local planning system a major brake (though citizen involvement remains important)
  • Independent economic regulation should stay independent and economic
  • But this may imply occasional need to legislate for environmental goals
  • New institutions may be needed for R&D
taking low carbon seriously may be politically difficult
Taking Low Carbon Seriously May Be Politically Difficult
  • Moving to low carbon economy creates losers as well as winners
  • Implementing necessary changes may require overcoming difficult barriers – e.g. local resistance to new investment, business opposition to taxes, resistance to nuclear power
  • Need for wider public engagement as energy decentralises and touches more citizens directly. Current DTI consultation attempting this
  • DTI Consultation, plus White Paper by early next year, should raise awareness of big issues